A Mortgage Loan is a way of utilizing the property as a guarantee for a loan the land or property (residential, commercial, rental) is kept as collateral. A property or mortgage loan can be a great option for accomplishing personal goals that may otherwise demand a huge chunk of your savings.
Be it purchasing a home, funding a grand wedding or your child’s education, planning a vacation or expanding your business, or financing hefty medical expenses a mortgage loan is fit for all.
In India, 8 types of property loans are widely offered. Here is a detailed view of each of the eight types, along with current mortgage loan rates.
Mortgage Loan Interest Rates and Types to be Aware of
Fixed-Rate Mortgage Loan
As the name suggests, the rate of interest in the case of a fixed-rate mortgage loan remains the same throughout the tenor and does not fluctuate with changes in the market forces. This mortgage loan is very common and is generally considered for financing commercial or residential properties.
Adjustable Rate Mortgage Loan
Contrary to a fixed-rate mortgage loan, an Adjustable-rate property loan interest rate is a variable one. Initially, the interest charged is set below the market rate on a comparable fixed-rate loan but increases over time. If held for long, the rate may surpass the current rate of a fixed-rate loan.
Simple Mortgage Loan
In this case, the borrower personally mortgages the immovable property to get a loan. However, on defaulting the payment, the lender reserves all rights to sell the mortgaged property.
Unlike other loans, simple mortgage loan rates are calculated regularly. The interest paid on such a loan is typically higher as compared to the others.
Here the property rights are transferred from the borrower to the lender till the time the full loan amount is paid off. The latter may receive profits or rent from the property without holding the borrower liable.
This type of property loan is tailor-made for those with a low CIBIL or credit score (below 725) and are considered likely to default on payment. The subprime property loan interest rates are higher than the prime rate and usually vary depending on lenders.
Here, the borrower agrees to transfer the property to the lender upon failing to repay the loan. However, on repaying the due amount, the property and rights are transferred back to the borrower. Such type of a loan, thus, creates a personal liability on the borrower.
Mortgage by Conditional Sale
This involves the borrower selling the property under certain terms and conditions stating that it stands effective in case of default in payment, and null and void in case of successful repayment of the loan amount.
Mortgage by Depositing Title Deed
In this case, the title deed of the concerned property is deposited to the lender against a loan.
A property loan that does not come under any of the above major types, is termed an Anomalous mortgage loan.
While different lenders may offer various mortgage loan interest rates, the borrower’s employment type self-employed or salaried also acts as a determining factor for the same.
Currently, the rate of interest charged on mortgage loans varies between 10.50% and 14.50% for self-employed borrowers, and between 10.10% and 11.50% for salaried individuals. Always compare interest rates offered by various lenders before applying for a mortgage loan.
Loan Against Property Features and Benefits to Lookout for
A loan against property comes with several exclusive features and benefits. Here are a few things you should take note of:
- These are secured loans, and hence, attract lower interest rates as compared to other types of loan
- Property loans can be availed over a tenor ranging up to 18 years
- Mortgage loans attract lower interest rates as compared to other loans
- You can avail of this loan for a longer tenor
- Property loans are considered cost-effective, as you have the option to repay the amount in smaller EMIs
- You get to compare and choose from various interest rate options fixed rate, floating interest rate, etc.
- Easy, hassle-free documentation procedure
Regardless of what you choose, be sure to first read through and understand the basic features and benefits of various mortgage loans. Doing thorough research and comparing the different types can help you make an informed decision, thus saving you considerable time and money.